Searching over 5,500,000 cases.

Buy This Entire Record For $7.95

Official citation and/or docket number and footnotes (if any) for this case available with purchase.

Learn more about what you receive with purchase of this case.



October 27, 1993

SAAB CARS USA, INC., Defendant.

The opinion of the court was delivered by: MARVIN E. ASPEN


 MARVIN E. ASPEN, District Judge:

 Plaintiffs David Glen, Inc. d/b/a Downtown Saab ("Downtown"), David Snower and Emanuel Annerino petition this court for a temporary restraining order to enjoin defendant Saab from (1) terminating the current franchise agreement with Downtown, and (2) appointing the franchise to any other party. For the reasons set forth below, we dismiss David Snower and Emanuel Annerino as plaintiffs in this action, deny plaintiffs' motion for a temporary restraining order, and direct the parties to Magistrate Judge Bucklo forthwith for an evidentiary hearing and her Report and Recommendation in connection with their request for a preliminary injunction.

 I. Background

 In 1990, Saab discovered a factory defect which required car owners to bring their cars in for certain recall repairs. Approximately 60 cars sought service at Downtown. According to petitioners, unbeknownst to Downtown, one of its mechanics, Ron Goetz, falsified documents to show that he had done the recall repairs when in fact he had done nothing. Downtown submitted these documents to Saab for reimbursement for parts and labor. After a "repaired" car was towed into Downtown for further work in July, 1993, Saab employees, with the help of Downtown's Service Manager, discovered the fraud. According to Saab, Downtown's president, Perry Snower, along with unnamed other Downtown employees, arranged to cover-up the fraud by performing recall repairs on a "repaired" car after it was returned for continuing malfunctions. To compound this deceit, Snower apparently burned or authorized employees to burn the recall part so it would appear that the part had been installed originally. *fn1" Furthermore, Saab alleges that Perry Snower misrepresented to State Farm Insurance, which insured one of the cars at issue, that the recall had actually been performed, and that any damage was due to a faulty recall unit. Accordingly, State Farm sought payment from Saab to repair the car.

 On August 19, 1993, Saab notified Downtown that it was terminating the franchise effective October 24, 1993. Subsequently, Saab discovered additional evidence of wrongdoing at Downtown. After conducting an audit of Downtown's inventory, Saab learned that Downtown had submitted false sales reports to Saab in order to collect certain sales incentives being offered by the distributor. Furthermore, Saab claims that Downtown has submitted a sizeable number of phony warranty claims to Saab for reimbursement. In short, Saab describes a scenario of wide-ranging fraud involving both management and staff members at Downtown.

 For its part, Downtown contends that the phony recall repairs were the work of a single rogue mechanic, and maintains that it has done everything possible, without Saab' cooperation, to contact those customers who received recall repairs and remedy any wrongdoing. In addition, Downtown indicates that it sought to mend its relationship with Saab to no avail. Downtown also challenges the audit results which demonstrate that it has been falsifying its warranty claims. Finally, although Downtown acknowledges submitting false sales and inventory figures to Saab, and collecting the corresponding incentives, it claims that it did so with the acquiescence, and even encouragement, of Saab.

 After trying to reconcile with Saab, Downtown sought buyers for the franchise. On October 6, 1993, Downtown entered into a buy/sell agreement with David Snower (Perry Snower's son) and Emanuel Annerino (currently a Sales Manager at Downtown). Snower previously operated the Metro Toyota dealership, while Annerino used to be a Saab employee. To date, Saab has not approved the transfer or even processed the application.

 In their complaint, plaintiffs request an injunction ordering Saab to approve the transfer and, in the event that fails, an injunction preventing Saab from cancelling the current franchise agreement with Downtown. In the meantime, Downtown asks for a TRO to maintain the status quo.

 II. Discussion

 A. Standing

 We first consider defendant's contention that plaintiffs David Snower and Emanuel Annerino lack standing. As a general rule, the Illinois Motor Vehicle Franchise Act ("IMVFA"), 815 ILCS 710 (West 1993), which provides the putative basis for this action, grants standing only to franchisees and motor vehicle dealers. 815 ILCS 710/13. Whether either or both of these classes has standing under any given section of the IMVFA, however, depends upon the individual section at issue. See Northwestern Buick, Inc. v. Nissan Motor Corp., 1990 U.S. Dist. LEXIS 3462 at *5-6, No. 89 C 9062 (N.D. Ill. March 29, 1990) (right to enforce particular section of IMVFA depends upon status of putative plaintiff and party to be protected by section). We first note that David Snower and Annerino do not have standing to bring a claim under § 4(d)(6) of the IMVFA, which relates to franchiser termination of a franchise. That section clearly limits its scope to a franchisee or motor vehicle dealer whose existing franchise or selling agreement has been terminated or cancelled. Because David Snower and Annerino do not have any such agreement with Saab, they are not covered by § 4(d)(6). Accordingly, they lack standing to bring a claim under that section. *fn2"

 We also find that David Snower and Annerino do not have standing under § 4(e)(11) of the IMVFA, which governs transfer approvals. For the purposes of this section, Snower and Annerino are merely potential successor franchisees. We note first that such parties are not granted standing generally under § 13. Given this fact, and considering the language of the section itself, we find that § 4(e)(11) is designed to protect only existing franchisees. It is the existing franchisee who submits the proposal for transfer and the existing franchisee who receives notice of the franchiser's reasons if it rejects the proposed successor franchisee. The potential successor franchisee is included in the section as an innocent bystander rather than as an active party. See Postma v. Jack Brown Buick, Inc., No. 1-90-1546 (Ill. App. Ct. Sept. 21, 1992) (currently on appeal to Illinois Supreme Court). *fn3"

  B. Temporary Restraining Order

 A TRO should be granted only if the movant can show the existence of irreparable harm, the absence of an adequate remedy at law, a probability of success on the merits, that the threat of harm to the movant in the absence of a TRO outweighs the harm to the non-movant if an injunction issues, and that the public interest would not be disserved by the TRO. United States v. Phillips, 527 F. Supp. 1340 (N.D. Ill. 1981). Because we find it to be dispositive, we consider first whether the petitioners have demonstrated a likelihood of success on the merits.

 Under the Illinois Motor Vehicle Franchise Act ("Act"), a car distributor such as Saab may not cancel or terminate a franchise agreement without good cause. 815 ILCS 710/4(d)(6). *fn4" Additionally, distributors or manufacturers violate the Act if they refuse to approve a proposal to transfer the franchise to a qualified buyer. 815 ILCS 710/4(e)(11). *fn5"

 We first consider whether the fraud perpetrated by Downtown constitutes "good cause" for terminating the franchise. Good cause exists where a franchisee fails to substantially comply with the franchise agreement or where the franchisee commits a breach of contract that affects the franchiser's ability to market its product. Kawasaki Shop of Aurora v. Kawasaki Motors Corp., 188 Ill. App. 3d 664, 544 N.E.2d 457, 463-64, 136 Ill. Dec. 4 (Ill. App. Ct. 1989) (adopting common law definition of "good cause" embodied in Dayan v. McDonald's Corp., 125 Ill. App. 3d 972, 466 N.E.2d 958, 974, 81 Ill. Dec. 156 (Ill. App. Ct. 1984)). Here, contrary to Downtown's version of events, Saab has submitted extensive evidence of widespread fraud implicating, among others, members of Downtown's current management. While an isolated incident by a rogue employee may not provide good cause for termination of a franchise, the ongoing deception outlined by Saab, including actions in direct violation of the franchise agreement, clearly support a finding of active participation by the petitioners. *fn6" Indeed, we find it inconceivable that the current management did not know of, and at least acquiesce in, the continued fraud at Downtown. Such behavior clearly falls within the realm of "good cause" for termination. Accordingly, we find that Downtown has virtually no chance of succeeding on the merits of its termination claim.

 The other issue before us is whether Downtown is likely to succeed on its claim that Saab violated the IMVFA by refusing to approve, or even process, Downtown's proposed transfer of the franchise. As Saab points out, however, the IMVFA requires that a distributor notify a dealer sixty days prior to the effective date of termination, and grants a distributor sixty days to respond to a dealer's proposal to transfer its franchise. 815 ILCS 710/4(e)(6) & (11) (1993). Because Downtown did not submit a transfer proposal to Saab until after Downtown received notice that its franchise was being terminated, its ownership interest in the franchise necessarily expires before Saab is obligated to act on the proposed transfer. Accordingly, Downtown's likelihood of success on its transfer claim hinges on its chances of prevailing on its termination claim, which, as discussed above, are low. That is, if Downtown loses on the termination claim, it will no longer have any rights under the IMVFA, and consequently will be unable to enforce any transfer rights provided in the Act. Therefore, Downtown's likelihood of success on the merits of its transfer claim are, at best, negligible. *fn7" Because petitioners are unable to demonstrate a likelihood of success on the merits, we deny their petition for a temporary restraining order.

 III. Conclusion

 For the reasons set forth above, we dismiss plaintiffs David Snower and Emanuel Annerino from this action for lack of standing. In addition, plaintiffs' petition for a temporary restraining order is denied. However, their underlying request for a preliminary injunction remains. Accordingly, the parties are to proceed to Magistrate Judge Bucklo forthwith for an evidentiary hearing on the preliminary injunction. Magistrate Judge Bucklo is to file a Report and Recommendation with this court upon completion of the evidentiary hearing. A status hearing is set for December 3, 1993 at 10:00 a.m. It is so ordered.


 United States District Judge


Buy This Entire Record For $7.95

Official citation and/or docket number and footnotes (if any) for this case available with purchase.

Learn more about what you receive with purchase of this case.